UK’s 4 biggest retail landlords face major risk from CVAs

shopping centre CVA
// 1/5 of shopping centre floorspace is exposed to struggling retailers or retailers in CVA or administration
// However, UBS’s findings were “higher than the companies’ reported rent impacted by CVAs”

Four of the UK’s biggest retail landlords are heavily exposed to struggling retailers and CVAs, according to new research.

Analysis from UBS has warned that around 20 per cent of shopping centre floorspace being let by the likes of British Land, Landsec, Hammerson and Intu are retailers that are either at risk of launching an insolvency procedure or are already in the midst of a CVA or administration.

UBS’s data came from 1477 retailers and 5666 stores across 50 shopping centres, and was based on weighing up floorspace exposure to struggling retailers rather than the typical industry metric of rental income.

For that reason, the investment bank said its findings were “significantly higher than the companies’ reported rent impacted by CVAs, which ranges from 2.7 per cent to 4.4 per cent of rental income”.

In addition, many of the struggling retailers have managed to either avoid store closures or succeed in securing some lower rents in their portfolios.

“The big unknown is the hits to the rental income,” UBS head of European real estate Osmaan Malik said.

“All of the retailers could decide ‘we’re going to go through CVAs, we’re going to cut our rents or we are going to move out of the centres that we don’t want to be in’, so it’s very difficult to judge.”

UBS said its analysis backed up its “already cautious” sentiments of the retail property sector.

It also reiterated its forecast of a further 20 per cent fall in the valuations of for shopping centres over the next two to three years.

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  1. There should be a revision to the antiquated practice of paying rent quarterly in advance. In and of itself, such a large cash call at the beginning of each quarter is enough to bring down a retail chain if it has any funding lines withdrawn or has a turbulent sales quarter.

    If landlords were more accommodating to monthly rental payments, as is the practice here in the U.S., that would give distressed retailers a chance to have more free cash flow to tackle their problems and hopefully turnaround their businesses, or shore up their finances.

  2. I have read Richard Elb’s comment and with the benefit of a further year of retail underperformance to analyse.
    Despite the fact that the quarterly rentals are antiquated devices, they are at least a known entity. Retail management knows that the quarterly rent bill will come on a given date and what that bill will be. By the same token, knowing what that rent is means that they could also accurately assess the business rates liability. My question therefore is why is it that no-one is demanding answers from retailers?
    There was a new retail paradigm that came into being back in the early sixties that determined that the measure of retail success in the corporate field was to amass as much premium sales space as possible to gain market share. Market share was all important to investors.
    Unfortunately, few, if any, retailers have seen fit to review that paradigm in the ensuing sixty years. We have an entire generation in the board-rooms who simply do not recall any other approach to their enterprises – which in 2020 is really akin to stupidity. Why? Because in 2008/09 there was another catastrophe, the so-called credit crunch which caused shock-waves for the retailers, it was a start to an extended depression in retail performances.
    Within a little over half a decade a new cloud appeared in the already cluttered sky to further depress performance, the issue of Brexit and the uncertainties that attended the now extended period of that activity. Now we have COVID-19…
    Retail managers failed to recognise the potential threats to their businesses in 2009, indeed the amount of sales floor-space occupied (despite all the horror stories of shops closing) actually increased. New stores were generally larger than the older ones which closed. So, no apparent alteration to the already outdated paradigm. So reflective considerations about safekeeping their businesses by not over-extending. No, it was business as usual.
    The problem was, of course, exacerbated by landlords, their agents and developers, all of whol have joined in and thrown themselves with gay abandon on the carousel of bigger, prettier, and above all, more expensive locations and stores.
    Planning authorities, increasingly since the 1970s of being influenced by the pointless superlative lists of ‘Top Town’, ‘Top Centre’ and ‘Top Retail Park’ and being bedazzled by the prospect of increasing business rate revenues and departmental kudos have supported these schemes, often to the detriment of existing schemes and traditional town centres.
    The problems of retailers are generally those created by retailers through poor management strategies, misunderstanding changing markets, or simple arrogance – believing that their magic would simply outshine the rest. The retailers are not, however, alone in the naughty corner – just about every actor in this sorry scenario has been guilty of failing to recognise the clear and loud messages that have been emerging for the past decade (as the messages of the previous fifty years have been igmored) and so I personally have little patience with those who merely bleat that the world’s gone mad and extend their hands for undeserved public support. All of the above mentioned actors could, and should, have been more honest, more rational and above all, more skilled in their planning.


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